Tuesday, 14 January 2014 00:06
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IFR Asia: The Democratic Socialist Republic of Sri Lanka became the year’s first emerging-market sovereign to issue US dollar bonds with a five-year paper, which drew substantial interest from US investors.
The offering, marking the sovereign’s sixth visit to the international bond market, priced slightly tight to its own curve.
Sri Lanka, rated B1/B+/BB–, raised US$ 1 b from the bonds, priced at par to yield 6.00%, tighter than initial price talk in the area of 6.25%. The bonds traded up to 100.150/100.25 on debut in the face of continued demand for the rare issuer.
On a curve basis, Sri Lanka’s outstanding 2020 bonds were quoted at a cash price of about 98, or a G-spread of 433bp. The yield on the new bond is a 431bp spread over Treasuries, or 2bp inside Sri Lanka’s curve, according to bankers close to the offering.
Bankers said the attractive funding cost achieved was likely to help other issuers in the region to follow and there were talks that corporate issuers were exploring the option of getting a standby letter of credits from banks to help them come to the offshore bond market.
In its previous visit to the market in July 2012, Sri Lanka raised US$ 1 b from a 5.875% 10-year global bond, which drew huge orders of US$ 10.5 b.
Sri Lanka was absent from the international bond market in 2012 and was keen to return to it, said the bankers close to the deal.
The sovereign was expected to sell two US$ 750 m long-term international bonds in 2014, but, with the billion-dollar deal priced yesterday, the lead managers said that the issuer was unlikely to make another visit this year and would probably tap other sources of funding to raise the balance.
Leads Citigroup, HSBC, Standard Chartered and UBS were confident of the demand for this credit and decided to bring the issue to the market without a roadshow in light of Sri Lanka’s improving fundamentals.
Sri Lanka’s Central Bank expects the economy to grow 7.8% in 2014, up from an estimated 7.2% last year. The Government is also confident of reducing its debt-to-GDP ratio to 65% come 2016 from about 80% in 2013.
The deal attracted an order book of US$ 3.2 b. US investors bought 62% of the 144A/Reg S paper, while Europeans bought 26% and Asian investors bought just 12%.
The muted response from Asian investors could be put down to two other sub-investment-grade deals in the market that offered more of a yield pick-up over Sri Lanka’s bonds.
Despite the aggressive pricing strategy, a positive reception to the offering, and its subsequently strong secondary market performance, worked in Sri Lanka’s favour.
Funds managers bought 89% of the bonds, while banks bought 8% and private-banking clients bought 3%.
The tight pricing the sovereign achieved is sure to see pipeline from the South Asian nation build up quickly.
“Some issuers are mulling credit enhancements through SBLCs and National Savings Bank could act as the provider,” said a Singapore-based syndicate banker.
Sri Lanka has stayed away from the market this year to encourage banks from the peninsula to access the offshore market.
However, only NSB and DFCC Bank came to the market last year and the latter priced a bond half the size it planned initially. National Development Bank, on the other hand, issued mandates, but did not price any deal.
However, bankers say corporate issuers are looking at the dollar bond market closely and a SBLC shield will help.
